Myth vs. Reality: San Francisco Rents NOT the Highest in the Country, says landlord Anne Kihagi

2018-11-19 14:22:53

A recent investigative SmartAsset article discussed cost of living in San Francisco and cited the Council for Community and Economic Research, which reported the total cost of living is 62.6% higher than the national average, citing data from Zumper.com. According to this data, the average rent for a two-bedroom apartment in San Francisco is $4,650. This ranks the city above NYC, Washington, D.C., Boston, and Los Angeles as the most expensive rental market. But, is this article accurate?

In the media’s discussion of San Francisco rent, they neglect to mention that they are referencing marketrent, not what most San Franciscans are actually paying, and definitely not what most landlords are collecting. Market rent is what a brand-new tenant pays for a currently vacant unit – not what is being paid by the many long-term tenants in rent-controlled properties. The reality is that local landlords make less than $2,000/month on most units, far less than other major metropolitan areas. For example, Boston, which has no rent control, reports an average rent of $2,600/month that actually applies to most Bostonians.

San Francisco is a rent-heavy market, with the Public Policy Institute of California reporting that many renters have occupied their units for years due to rent control, which reduces mobility and incentivizes tenants to reject career opportunities or home ownership in order to hold onto rent-controlled prices. About 65% of San Francisco housing is rented, while 35% is owner-occupied – a very high ratio of renters to owners. Most rented units have been filled by rent-controlled tenancies averaging over 15 years, preventing rental turn-over except for a very small slice of the city’s market.

When the news decries astronomical rents in San Francisco, they fail to mention that the few properties with these price tags account for only about 25% of rentals.

In fact, many tenants brag about their “great rent-controlled units,” such as the couple local landlord Anne Kihagi ran into on a recent flight. The couple works in the tech industry and rents a unit in Pacific Heights for less than $2,000/month (for those unfamiliar with San Francisco, Pacific Heights is the equivalent of Beverly Hills in Los Angeles). The couple said they never planned to leave their rent-controlled unit, an attitude that has made the median rent in San Francisco a mere $1,838.

Yet this reality of widespread San Francisco rent control is far from what is reported in the press. A tenant who has occupied his rent-controlled unit for 15+ years pays approximately $1,250 for a one-bedroom or $1,500 for a two-bedroom. Renters with closer to 10+ years of consistent occupancy pay closer to $2,000.

These rent-controlled prices easily expose the media’s skewed depiction of $3,500 city-wide rent. Many landlords would love to earn the constantly published, eye-popping rents, but that’s not reality. In fact, even when many tenants move out, many find a way to sublet and make market rent for themselves, while landlords are left collecting the rent-controlled sum.

A KALW news article describes Noni Richen’s experience as a landlord. She and her husband purchased a four-unit rent-controlled building in the 1980s as their retirement investment. Tenants still pay only $1,200/month for a two-bedroom unit in a great location! Without the limitations of rent control, Richen says she could likely charge $4,000/month in the current marketplace. From a landlord’s perspective, the limited number of available rentals is what breeds high prices. Rent-control creates reduced mobility and turnover, thus inflating the rent of non-controlled units.

In fact, a 2003 study conducted by the San Francisco Board of Supervisors found that most property owners had to rely on additional sources of income, with only 27% reporting rental properties as making up 50% or more of their income. This proves that landlords in San Francisco are making far less than what is depicted in the media, especially small-scale landlords who are struggling to make ends meet in a city where rent control has become income-prohibitive.